Gold at 3-Month Low Offers Opportunity

Source: Bloomberg, Pham-Duy Nguyen  (2/5/10)

"The Fed won't be able to raise rates. . .conditions are in place for higher gold prices"

Gold futures fell to a three-month low in New York as a strengthening dollar reduced demand for the precious metal as an alternative investment.

The dollar rose against a basket of six major currencies and traded at an eight-month high against the euro. Gold sank 4.4% yesterday and is headed for a fourth straight weekly loss, while the dollar is up for the third consecutive week.

"The dollar just keeps gaining momentum," said Tom Schweer, a senior market strategist at LaSalle Futures Group Inc. in Chicago. "Realistically, gold could fall another $20 to $40 before people start to load up again."

Gold futures for April delivery fell $4, or 0.4%, to $1,059 an ounce at 11 a.m. on the Comex division of the New York Mercantile Exchange. Yesterday, gold's $49 loss was the biggest percentage drop for a most-active contract since Dec. 1, 2008. The metal is down more than 2% this week.

"Yesterday's global margin-call will reverberate in the markets for some time to come," said Jon Nadler, a Kitco Inc. analyst in Montreal.

Decline an Opportunity

A drop in prices may be an opportunity to buy, analysts and traders said.

"This is the only metal we would wish to be long of," said Dennis Gartman, editor of the Gartman Letter.

Gold may fall to $800 before rebounding to a record when investors realize the U.S. government has exhausted tools to revive the economy, said Tom Winmill, a New-York based portfolio manager of the Midas Fund. In December, he predicted gold may average $1,500 in the fourth quarter of 2010.

"The Fed won't be able to raise rates, given the employment situation and current fiscal burden. Conditions are in place for higher gold prices," said Winmill.

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